Tuesday’s media spin on the May vintage of a closely-watched fund manager survey lacked important nuance.
Anecdotally, investors are the most pessimistic about global growth they’ve been all year, but respondents to BofA’s poll overwhelmingly expect a soft landing. Nearly 300 panelists with $735 billion in AUM participated in the May survey.
A net 65% now expect a weaker economy, slightly more than April, and a very poor reading by historical standards.
The series maps reasonably well with rolling changes in US equity performance.
You can thank China’s faltering recovery for the deterioration in fund managers’ growth outlook.
But, nearly everyone expects inflation to fall, and that’s been the case for months now. At the same time, a net 55% of survey respondents expect short-term rates to be lower. In simple terms, fund managers think the Fed is done.
The combination of lower expected inflation and the end of Fed tightening make a soft landing the most likely outcome. Or at least according to two-thirds of BofA survey participants.
Asked specifically if the Fed is finished hiking rates, 61% said yes. 43% expect rate cuts to commence in January of next year, and a third see cuts in the second half of 2023.
Unsurprisingly given passable results from corporate America during Q1 reporting season, fund managers expect a very mild earnings downturn, if they see a downturn at all.
“Expectations for a ‘soft landing’ corroborate with expectations for a mild EPS recession,” the bank’s Michael Hartnett said Tuesday, noting that the weighted average response suggests “FMS investors expect global earnings to fall by just -0.8%.”
As some readers are doubtlessly aware, Hartnett isn’t so sanguine about the outlook for profits.